Honda settles with minority borrowers; agrees to pay $24 million

Published 12:18 pm, Wednesday, July 15, 2015

Honda Motor Co.’s CEO Takahiro Hachigo speaks during a press conference at the automaker’s headquarters in Tokyo on July 6, 2015.

Honda Motor Co.’s CEO Takahiro Hachigo speaks during a press conference at the automaker’s headquarters in Tokyo on July 6, 2015.

Photo: AP Photo/Shizuo Kambayashi

Honda settles with minority borrowers; agrees to pay $24 million

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Honda’s auto-financing arm agreed to repay $24 million to minority borrowers to settle a Justice Department complaint that it overcharged them.

Thousands of minorities paid higher interest rates on Honda auto loans than white borrowers, according to a Justice Department complaint filed Tuesday in a federal court in Los Angeles.

Honda pledged to restructure its auto-financing program as part of the settlement, the company and the Justice Department said.

The auto company’s finance arm, American Honda Finance Corp., does not make loans directly to consumers. Instead, it receives loan applications from car dealerships, which can adjust a loan’s interest rate based on the borrower’s creditworthiness.

Honda had authorized dealers to mark up interest rates by 2.25 percentage points, prosecutors said. Those markups will be held to 1.25 points if the loan is for five years or less, Honda said.

Regulators found rate discrimination within those markups, Assistant Attorney General Vanita Gupta said in an interview. By placing a cap on markups, the settlement attempts to curb discriminatory lending, Gupta said.

But auto industry advocates have said they were concerned that such rate ceilings could hurt consumers. Dealers charge a markup to make the financing worthwhile, they say. Without that wiggle room, consumers may lose a bargaining chip if dealers feel they have less room to negotiate and still turn a profit, industry officials have said.

But consumers are left in the dark to begin with, Gupta said. When consumers are handed a financing proposal, they don’t know how much dealers have added to it.

“Consumers are at a disadvantage by not being able to know what the interest rates are and where the markups are,” Gupta said.

The Justice Department and the Consumer Financial Protection Bureau began investigating Honda’s loan rates in 2013 and found that minority borrowers were paying between $150 and $250 more than white borrowers.

In a statement, Honda said it doesn’t discriminate against borrowers.

American Honda Finance Corp. “strongly opposes any form of discrimination, and we expect our dealers to uphold this principle as well,” the statement said. “We firmly believe that our lending practices have been fair and transparent.”